The U.S. Department of Education plans to provide liquidity support to the student loan market through a new commercial paper conduit facility for the purchase of loans made as far back as October 2003. It also plans to renew a high-profile student loan liquidity program.

The announcements in November were the latest developments in a series of programs the federal government has unveiled following the passage of the Ensuring Continued Access to Student Loans Act, or ECASLA, in May to assist non-bank lenders in financing student loans. Hundreds of billions of dollars of student loans are eligible for the programs.

Under the DOE program authorized by the legislation, lenders can either sell loans directly to the department or tap liquidity through a cumbersome, short-term program. Yet state-level nonprofit lenders that issue tax-exempt student loan debt say that the department's measures would only have a marginal impact. The reasons involve the collapsed auction-rate securities market. Student loan lenders squeezed by the financial crisis are still struggling with large portfolios of illiquid auction rate securities, the underlying collateral for which is largely composed of consolidated loans. By some estimates, more than half of nonprofit lenders' loans are consolidated loans.

Peter Warren, executive vice president of the Education Finance Council, which represents nonprofit student loan lenders, said the programs will be "of marginal help to nonprofits since it does not directly address the $80 billion in old loans tied up in illiquid auction-rate securities."

Warren urged the Treasury department to use its authority under the recently enacted $700 billion bailout package to provide standby liquidity for student-loan issuers seeking to convert auction-rate securities to variable-rate demand obligations.